Latest news with #stockvaluation
Yahoo
4 days ago
- Business
- Yahoo
Alphabet Posts Lower Free Cash Flow and FCF Margins - Is GOOGL Stock Overvalued?
Alphabet Inc. (GOOG, GOOGL) reported higher Q2 revenue on July 23, but lower operating cash flow and significantly reduced free cash flow (FCF). Based on its capital expenditure plans, Alphabet's FCF could decline 10% over the next 12 months (NTM). As a result, GOOGL stock may be fully valued today. Shorting out-of-the-money (OTM) put options to set a lower buy-in point may be a good play here. This article will delve into this. More News from Barchart The Saturday Spread: Leveraging Practical Math to Extract Alpha in Hidden Places Stop Missing Market Moves: Get the FREE Barchart Brief – your midday dose of stock movers, trending sectors, and actionable trade ideas, delivered right to your inbox. Sign Up Now! GOOGL closed at $193.18 on Friday, July 25. That is up from its July 23 close of $190.23, and well off its 6-month peak of $206.38 on Feb. 4. It's possible, without a huge increase in the stock's FCF multiple, GOOGL could be worth around 10% less at $174 per share. Alphabet's AI-Driven Capital Spending Plans Alphabet's Q2 revenue rose 14% YoY, and its operating income was also 14% higher. Moreover, the operating income margin stayed flat at 32% for both periods. But that is all before the company's cash flows and, more importantly, its capital expenditure (capex) activities. The table below from its Q1 and Q2 earnings releases shows that operating cash flow margins fell YoY, and its capex spending exploded. As a result, this table shows that Alphabet's FCF margin imploded to just 5.5% of sales, down from 21% last quarter and 18% over the last year. It's due to capex spending, which is now 40% of sales and 80% of operating cash flow. If this keeps up over the next year, Alphabet's valuation could falter. In fact, Alphabet's CEO, Sundar Pichai, said on the first page of the Q2 earnings release, Alphabet will spend $85 billion this year on capex, all driven by its AI-driven activities. Let's look at that. The table above shows that capex so far this year is $39.943 billion. That leaves $45.057 billion over the next 2 quarters, or $22.5 billion on average (about equal to Q2). That implies that over the next 12 months (NTM), capex will be $90 billion (i.e., $22.5 x 4). Let's use that to forecast NTM FCF. Forecasting NTM FCF Analysts project sales this year will be $393.38 billion and next year $436.94 billion. That puts its next 12 months (NTM) sales forecast at $415.16 billion. So, if we use its Q2 operating cash flow (OCF) margin of 28.8% and assume it will last over the NTM period: $415.16b x 0.288 = $119.57 NTM OCF In other words, OCF could fall from $133.7 billion over the trailing 12 months (TTM) - see the table above - to just $120 billion. That's a 10.2% decline. So, just to be conservative, and to improve the outlook, let's assume the margin stays the same (36%) as the TTM figure above: $415.15b x 0.36 = $149.6 billion OCF Next, we can deduct the $90 billion in run-rate capex spending that the CEO implied in his statement that 2025 capex will be $85 billion in 2025: $150b OCF - $90b = $60 billion FCF But that is still -10% below the $66.728 billion Alphabet generated in the TTM period (see the table above). In other words, the outlook is not good for Alphabet's FCF rising. This could dramatically affect the stock over the next year. Setting a FCF-Based Price Target for GOOGL Stock One way to value a stock using its FCF forecast is to use a FCF yield metric. This assumes that 100% of the FCF is paid out to investors. What will the dividend yield be? For example, given the market cap today of $2.341 trillion from Yahoo! Finance, its TTM FCF represents 2.85% of its market value: $66.728 billion TTM FCF / $2,341 billion mkt cap = 0.0285 This is also the same as multiplying FCF by 35x (i.e., 1/0.0285 = 35.1) So, using this FCF yield metric, and applying to the $60 billion forecast for FCF over the next 12 months: $60.00b x 35.1 = $2,106 billion est. mkt cap That is still 10% below today's market cap of $2,341 billion. In other words, GOOGL stock's price target is 10% lower than today, or $173.86: $193.18 x (1-.10) = $193.18 x 0.90 = $173.86 price target The point is that GOOGL stock may be overvalued. The only way this might turn around is if its OCF margin rises over 36% (even though it was just 28.8% in Q2) and/or the market gives the stock a higher multiple than 35x FCF. Therefore, it might make sense to set a lower buy-in price by selling short out-of-the-money (OTM) put options. That way, an investor can get paid waiting for GOOGL stock to fall. Shorting OTM Puts For example, look at the Aug. 29 expiration period. That is just over one month from now. It shows that the $175.00 strike price put option, about 9.4% lower than today's price, has a midpoint premium of $1.23 per put contract. That means a short-seller of these puts can make a yield of 0.70% (i.e. $1.23/$175.00). But note that there is just a 13% chance of this occurring (i.e., the delta ratio is -0.1294). The point is that if GOOGL stock falls to $175.00, the breakeven point for the assigned investor's account is $173.77 (i.e., $175.00-$1.23). That is just below our breakeven point for the stock $173.86 - see above). If the investor is able to repeat this over the next 3 months until the next quarterly release, the expected return is +2.1% (i.e., 0.70% x 3). But at least investors in GOOGL stock can make extra income here, shorting puts if they already own shares. The bottom line is that if GOOGL stock falters one way to play it is to sell short OTM puts every month. On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
5 days ago
- Business
- Yahoo
Where Will Palantir Technologies Be in 3 Years?
Key Points Palantir's diverse software and vast market opportunity are legitimate causes for excitement. However, the stock's valuation has begun to resemble that of Snowflake in 2020, a story that didn't end well. Crunching the numbers to see whether Palantir has any upside left over the next few years. 10 stocks we like better than Palantir Technologies › Has there been as exciting a stock over these past three years as artificial intelligence (AI) software standout Palantir Technologies (NASDAQ: PLTR)? Probably not. The company's growth has continued to accelerate since launching its Artificial Intelligence Platform (AIP) for AI applications in mid-2023. The stock id up a whopping 1,300% over the past three years. It's healthy to be a bit skeptical when stocks generate such massive returns in such a short time. AI continues to prove its staying power, with companies everywhere investing significant resources in data centers and AI development. It's time to look to the future. So, where will Palantir Technologies be in three years? Here is what investors might expect. Palantir's momentum with government and commercial customers gives it a tremendously high ceiling Over time, AI is likely to become a game-changer for nearly every organization. That goes for government organizations and corporations alike. What makes Palantir Technologies special is its strong ties to both groups. Its growth momentum is strongest in the United States, where sales from government customers increased by 45% year over year in the first quarter of 2025, and revenue from commercial customers grew even faster, up 71% year over year. Palantir has generated $3.1 billion in revenue over the past 12 months and still has just 769 customers. Palantir develops custom software for a seemingly endless range of use cases. The military uses it to support missions, and hospitals use it to coordinate staff and patient care. Those are two examples of many. Essentially, any organization that generates data and can benefit from using that data to do things more efficiently or make better decisions is a potential Palantir customer. Such flexibility in its technology opens up a vast potential customer base. There are roughly 20,000 large companies in the United States, and the government has other departments and organizations. Investors are excited for good reason; Palantir has a high ceiling if things continue to go well. But the stock price now reflects much of that potential The chart below is not of Palantir's share price but rather its price-to-sales (P/S) ratio. That's the relationship between the stock's market value and Palantir's revenue. If the stock's value and Palantir's revenue rose proportionately, the line would be flat. Instead, it reflects how the stock price has consistently risen faster, pushing that ratio ever higher. Excessive valuations can be hazardous to your portfolio. At some point, valuations can get so high that they create impossible expectations. When the stock inevitably fails to meet those expectations, the share price can unwind violently. The bubble bursts. At this point, it's fair to argue that Palantir's valuation is irrationally high. There may not be a higher valuation on Wall Street today, and the only similar example I can think of is Snowflake, just after it went public amid a stock market bubble in 2020-2021. Investors who bought Snowflake stock the day it began trading are still waiting for it to show a gain years later. Here is where the stock may go over the next three years Nobody can predict where a stock may trade in the future, but the odds are rising that Palantir will serve up disappointing returns for a while from these high prices. I'll assume that Palantir sustains 40% annualized revenue growth over the next three years. That would mean that its trailing-12-month revenue of $3.1 billion would grow to $4.3 billion, then $6 billion, and finally, $8.5 billion three years from now. Today, Palantir trades at a market cap of $358 billion. Here are some projections for what the stock could do, depending on various valuations. Price-to-Sales Ratio July 2028 Market Cap Total Three-Year Upside or Downside 100 $850 billion 137% 90 $765 billion 113% 75 $637.5 billion 78% 60 $510 billion 42% 40 $340 billion -5% Data source: The author's own calculations. Palantir's growth could slow down or accelerate, but assuming 40% annualized revenue growth is probably generous. Analysts currently estimate that Palantir's full-year 2025 revenue will be 35% higher than last year, so this exercise assumes growth will accelerate further and then maintain that pace for over two years. And yet, investors still must hope that the stock can maintain a breathtakingly high valuation. Otherwise, the upside dries up quickly. A P/S ratio of 40 is still very steep. Even Nvidia, perhaps the top AI stock today, trades at 27 times its revenue. The bottom line? Palantir probably has more room to fall than to continue rising at this point. Therefore, the odds favor Palantir disappointing investors after an epic past three years. Should you invest $1,000 in Palantir Technologies right now? Before you buy stock in Palantir Technologies, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Palantir Technologies wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $636,774!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,064,942!* Now, it's worth noting Stock Advisor's total average return is 1,040% — a market-crushing outperformance compared to 182% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 21, 2025 Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, Palantir Technologies, and Snowflake. The Motley Fool has a disclosure policy. Where Will Palantir Technologies Be in 3 Years? was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Globe and Mail
19-07-2025
- Business
- Globe and Mail
Palantir Just Hit a Record High. What's the Smart Move Now?
Key Points The tech company's revenue growth rate accelerated in Q1. Palantir's commercial business in the U.S. is seeing explosive growth. The stock's wild valuation leaves no room for error. 10 stocks we like better than Palantir Technologies › Data and artificial intelligence company Palantir (NASDAQ: PLTR) seemed to defy gravity in 2024. Shares more than quadrupled, rising a staggering 340%. With such an incredible rise, you'd be forgiven for guessing that the stock would cool off in 2025. But, so far, the opposite is true. Shares are heating up, rising by more than 105% year to date as of this writing. This has given the tech stock a gain of approximately 800% since the start of 2024. With shares trading at record highs. What should investors do? Does it make sense to buy more shares and hope the momentum continues? Or should investors take a more cautious approach and hold or even sell the stock? Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More » Soaring sales One thing Palantir really has going for it is its top-line growth. The tech company posted first-quarter revenue of $884 million, up 39% year over year. Highlighting the company's momentum, this was an acceleration from 36% year-over-year growth in the previous quarter. Fueling Palantir's first quarter of 2025 was 55% year-over-year growth in U.S. revenue. Accounting for $628 million of the quarter's total revenue, the U.S. market is vital for Palantir. Supporting this market was a 71% year-over-year increase in commercial revenue and a 45% jump in government revenue. Zooming out to all of the company's markets, Palantir said in its first-quarter update that it closed 139 deals worth $1 million or greater, 51 deals worth at least $5 million, and 31 deals worth $10 million or more. With these strong results now behind it, management had the confidence to raise full-year revenue guidance. The company said it now expects 2025 revenue to be between $3.890 billion and $3.902 billion. This compares to revenue of about $2.9 billion in 2024. The midpoint of management's 2025 revenue guidance range, therefore, assumes about 36% growth. This impressive top-line growth is bolstering profits. Palantir's first-quarter net income was approximately $214 million, more than double its profit of about $106 million in the year-ago quarter. Comments from Palantir co-founder and CEO Alexander Karp in the company's first-quarter earnings call suggest he believes the company is still in its early innings. "We are in the middle of a tectonic shift in the adoption of our software, particularly in the U.S..." Karp noted. "We are delivering the operating system for the modern enterprise in the era of AI." A valuation problem While Palantir's top-line momentum is certainly impressive, there's one big problem for investors: The market seems to have already priced in more rapid growth for years to come. Today, Palantir's market capitalization sits at about $365 billion -- more than 93 times the high end of management's guidance range for full-year 2025 revenue. Using the company's trailing-12-month sales, Palantir currently has a price-to-sales ratio of 123. This would be a high figure even for a price-to- earnings ratio. And what is Palantir's price-to-earnings ratio? It's 672. Yes, you heard that right. It's safe to say that investors have already bid up the stock to a level that prices in the most optimistic assumptions for this company. So, what should investors do? The decision is a personal one -- one that you'll have to make on your own. However, if I owned the stock, I'd sell. And for those who don't own shares, I'd avoid them like the plague at this price. Of course, I could be wrong. It's always possible that Palantir exceeds even my most bullish assumptions. Still, I believe there are likely better places with less risk and greater upside potential for investors to allocate their capital. Palantir is a great company. But expectations are simply too high. Investors would be wise to wait to see if they can buy shares at a better entry price. Should you invest $1,000 in Palantir Technologies right now? Before you buy stock in Palantir Technologies, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Palantir Technologies wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $652,133!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,056,790!* Now, it's worth noting Stock Advisor's total average return is 1,048% — a market-crushing outperformance compared to 180% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 15, 2025
Yahoo
19-07-2025
- Business
- Yahoo
Palantir Just Hit a Record High. What's the Smart Move Now?
Key Points The tech company's revenue growth rate accelerated in Q1. Palantir's commercial business in the U.S. is seeing explosive growth. The stock's wild valuation leaves no room for error. 10 stocks we like better than Palantir Technologies › Data and artificial intelligence company Palantir (NASDAQ: PLTR) seemed to defy gravity in 2024. Shares more than quadrupled, rising a staggering 340%. With such an incredible rise, you'd be forgiven for guessing that the stock would cool off in 2025. But, so far, the opposite is true. Shares are heating up, rising by more than 105% year to date as of this writing. This has given the tech stock a gain of approximately 800% since the start of 2024. With shares trading at record highs. What should investors do? Does it make sense to buy more shares and hope the momentum continues? Or should investors take a more cautious approach and hold or even sell the stock? Soaring sales One thing Palantir really has going for it is its top-line growth. The tech company posted first-quarter revenue of $884 million, up 39% year over year. Highlighting the company's momentum, this was an acceleration from 36% year-over-year growth in the previous quarter. Fueling Palantir's first quarter of 2025 was 55% year-over-year growth in U.S. revenue. Accounting for $628 million of the quarter's total revenue, the U.S. market is vital for Palantir. Supporting this market was a 71% year-over-year increase in commercial revenue and a 45% jump in government revenue. Zooming out to all of the company's markets, Palantir said in its first-quarter update that it closed 139 deals worth $1 million or greater, 51 deals worth at least $5 million, and 31 deals worth $10 million or more. With these strong results now behind it, management had the confidence to raise full-year revenue guidance. The company said it now expects 2025 revenue to be between $3.890 billion and $3.902 billion. This compares to revenue of about $2.9 billion in 2024. The midpoint of management's 2025 revenue guidance range, therefore, assumes about 36% growth. This impressive top-line growth is bolstering profits. Palantir's first-quarter net income was approximately $214 million, more than double its profit of about $106 million in the year-ago quarter. Comments from Palantir co-founder and CEO Alexander Karp in the company's first-quarter earnings call suggest he believes the company is still in its early innings."We are in the middle of a tectonic shift in the adoption of our software, particularly in the U.S..." Karp noted. "We are delivering the operating system for the modern enterprise in the era of AI." A valuation problem While Palantir's top-line momentum is certainly impressive, there's one big problem for investors: The market seems to have already priced in more rapid growth for years to come. Today, Palantir's market capitalization sits at about $365 billion -- more than 93 times the high end of management's guidance range for full-year 2025 revenue. Using the company's trailing-12-month sales, Palantir currently has a price-to-sales ratio of 123. This would be a high figure even for a price-to-earnings ratio. And what is Palantir's price-to-earnings ratio? It's 672. Yes, you heard that right. It's safe to say that investors have already bid up the stock to a level that prices in the most optimistic assumptions for this company. So, what should investors do? The decision is a personal one -- one that you'll have to make on your own. However, if I owned the stock, I'd sell. And for those who don't own shares, I'd avoid them like the plague at this price. Of course, I could be wrong. It's always possible that Palantir exceeds even my most bullish assumptions. Still, I believe there are likely better places with less risk and greater upside potential for investors to allocate their capital. Palantir is a great company. But expectations are simply too high. Investors would be wise to wait to see if they can buy shares at a better entry price. Should you invest $1,000 in Palantir Technologies right now? Before you buy stock in Palantir Technologies, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Palantir Technologies wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $652,133!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,056,790!* Now, it's worth noting Stock Advisor's total average return is 1,048% — a market-crushing outperformance compared to 180% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 15, 2025 Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy. Palantir Just Hit a Record High. What's the Smart Move Now? was originally published by The Motley Fool
Yahoo
16-07-2025
- Business
- Yahoo
Jim Cramer Says PepsiCo is Too Cheap Yet Overlooked
PepsiCo, Inc. (NASDAQ:PEP) is one of the stocks that Jim Cramer shared insights on. Cramer discussed the stock's valuation during the episode, as he said: 'If you want to know a stock that's too cheap relative to its growth rate, but nobody talks about it anymore, why don't you check out the stock of PepsiCo? It trades at a stunningly low 17 times earnings. I mean, what gives? Well, how about GLP-1 drugs? How about RFK Junior at Health and Human Services, who despises junk food even as he seems to embrace junk science? How about the desire to stay healthy? All these have weighed on PepsiCo stock. Of course, don't forget they own Frito-Lay. Maybe it's finally overdone. I don't know it. It's a tough industry all of a sudden.' A close up of a glass of a refreshing carbonated beverage illustrating the company's different beverages. PepsiCo (NASDAQ:PEP) produces and sells a wide range of beverages and packaged foods, including snacks, cereals, dairy products, and soft drinks. The company's portfolio features well-known brands like Lay's, Gatorade, Quaker, and Pepsi. While we acknowledge the potential of PEP as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock. READ NEXT: 30 Stocks That Should Double in 3 Years and 11 Hidden AI Stocks to Buy Right Now. Disclosure: None. This article is originally published at Insider Monkey. Sign in to access your portfolio
